How are potential GDP and real GDP alike?

Potential GDP and real GDP measure the same thing: the total output of goods and services an economy produces. Both are adjusted for inflation, so they are stated in the same constant-dollar terms and can be compared directly. In U.S. data on FRED, for example, both series are reported quarterly in billions of chained 2017 dollars.

The difference is that real GDP, published by the Bureau of Economic Analysis, is the measured value of what the economy actually produced. Potential GDP is an estimate, made in the U.S. by the Congressional Budget Office, of the output the economy would produce with a high rate of use of its capital and labor resources. The gap between the two, called the output gap, shows whether the economy is running below or above its sustainable capacity.

Sources: FRED, Real Potential Gross Domestic Product (GDPPOT), U.S. Congressional Budget Office; FRED, Real Gross Domestic Product (GDPC1), U.S. Bureau of Economic Analysis

Image: US potential and actual GDP (CBO, January 2009 outlook), Congressional Budget Office, public domain, via Wikimedia Commons.

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